On the scale of economic organisation, the internal economy of the firm would seem to be at the opposite end from the economics of international trade, which was Professor Harry Johnson's special interest. In defence of my choice of topic for this occasion, I might point out that the internal economics of multinational firms span the globe and cross many national boundaries. However, I shall not today give any special attention to multinational firms, but just to large ones. Table 1 gives some idea of the size of the largest U.S. firms, as reported by Fortune magazine in its most recent report on 'The Fortune 500.' In terms of employees, the largest is General Motors, with approximately 700,000 employees. This is approximately the same as the number of persons employed in manufacturing in The Netherlands in the same year (1983). Most of the Fortune 500 are, of course, much smaller; in terms of employment, the mean in 28.1 thousand, and the median is 13.1 thousand. Nevertheless, it is clear from the table that the internal economies of these firms are very large indeed. In this paper I shall review, and try to explain in relatively nontechnical terms, some of the recent developments in economic theory that bear on the internal economics of firms. This review will be partial and selective, reflecting my own research interests. It will focus on two primary themes, decentralisation and incentives. Even smaller firms are forced to decentralise information to some extent, given the very limited capacities of decision-makers to observe, process, and